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Fed approves MF Global and SG Americas Securities as Primary Dealers

The Federal Reserve Bank of New York today added two Primary Dealers to the list of 18 broker-dealers approved to repo with the New York Fed. The newly approved dealers are MF Global Holdings Inc. and SG Americas Securities, LLC.

MF Global is a New York City broker-dealer headed by former Goldman Sachs chairman Jon Corzine, and SG Americans Securities is the U.S. broker-dealer arm of French banking giant Societe Generale.

“We are delighted to join the group of dealers trading directly with the Federal Reserve Bank of New York,” said MF Global’s Peter McCarthy, global head of fixed income, in a prepared statement. “This designation is a natural next step as we continue to build our fixed income platform to provide broad access and liquidity to global markets.”

The Primary Dealers are the most influential players in the U.S. repurchase market. In addition to conducting repos for their own business purposes, they help the New York Fed’s trading desk implement monetary policy through transactions on the repurchase market and they supply Fed traders with market information and analysis.

In other words, they were the primary bankers whispering in U.S. Treasury Secretary Timothy Geithner’s ear when he headed the New York Fed in the years leading up to the financial crisis of 2007 and 2008.

The Fed is rebuilding its list of approved Primary Dealers after Bear Stearns was acquired by JP Morgan Chase, Lehman Brothers went out of business and Merrill Lynch was acquired by Bank of America during the crisis. A decade ago there were more than 40 dealers, and the list peaked at 46 in 1988, according to The Financial Times.

In the financial crisis, the Federal Reserve and Treasury took historical steps to protect the Primary Dealers and the U.S. repurchase market that was the primary site of the credit crisis. Chiefly, they:

– made repo loans to the Primary Dealers  to keep the repurchase market viable. This amounted to opening the Fed’s discount window to broker-dealers. The Primary Dealer Credit Facility was in effect from March 2008 to February 2010.

– lent Treasury securities to the Primary Dealers so they’d have AAA collateral to get loans on the repo market. The Term Securities Lending Facility lasted from March 2008 to February 2010.

The Fed requires Primary Dealers to report all of their weekly repurchase activity, whether conducted with the Fed or with others. Because repo data is scarce, those reports are the best gauge of U.S. repo activity. (Editor’s note: RepoWatch’s “Watching for the next bubble” chart on the Home Page is based on Primary Dealer volumes reported to the New York Fed.)

Primary Dealers are thought to represent about 90 percent of the U.S. repurchase market. In the past decade their outstanding repurchase agreements peaked at $4.6 trillion in March of 2008, fell to $2.2 trillion in September of 2009 and now have climbed back to $2.6 trillion

In addition to MF Global and SG Americas Securities, the Primary Dealers are:

BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
UBS Securities LLC.

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